Police officers protect a Starbucks outlet in Oxford Street during the TUC anti-austerity protest in London on 20 October 2012. Photograph: Suzanne Plunkett/Reuters

‘Only the little people pay taxes,” the late American corporate tax evader Leona Helmsley famously declared. That’s certainly the spirit of David Cameron and George Osborne’s Britain. Five years into the crisis, the British economy has just edged out of its third downturn, but construction is still reeling from government cuts and most people’s living standards are falling.

Those at the sharp end are being hit hardest: from cuts to disability and housing benefits, tax credits and the educational maintenance allowance and now increases in council tax while NHS waiting lists are lengthening, food banks are mushrooming across the country and charities report sharp increases in the number of children going hungry. All this to pay for the collapse in corporate investment and tax revenues triggered by the greatest crash since the 30s.

Not that many of them pay anything like that, even now. The scale of tax avoidance by high-street brand multinationals has now become clear, in no small part thanks to campaigning groups such as UK Uncut. Asda, Google, Apple, eBay, Ikea, Starbucks, Vodafone: all pay minimal tax on massive UK revenues, mostly by diverting profits earned in Britain to their parent companies, or lower tax jurisdictions via royalty and service payments or transfer pricing.

Four US companies – Amazon, Facebook, Google and Starbucks – have paid just £30m tax on sales of £3.1bn over the last four years, according to a Guardian analysis. Apple is estimated to have avoided over £550m in tax on more than £2bn worth of underlying profits in Britain by channelling business through Ireland, according to a Sunday Times analysis, while Starbucks has paid no corporation tax in Britain for the last three years.

The Tory MP and tax lawyer Charlie Elphicke estimates 19 US-owned multinationals are paying an effective tax rate of 3% on British profits, instead of the standard rate of 26%. It’s all entirely legal, of course. But taken together with the multiple individual tax scams of the elite, this roll call of corporate infamy has become an intolerable scandal, when taxes are rising and jobs, benefits and pay being cut for the majority.

Not only that, but collecting the taxes that these companies have wriggled out of would go a long way to shrinking the deficit for which working- and middle-class Britain’s living standards are being sacrificed. The total tax gap between what’s owed and collected has been estimated by Richard Murphy of Tax Research UK at £120bn a year: £25bn in legal tax avoidance, £70bn in fraudulent tax evasion and £25bn in late payments.

Revenue and Customs’ own last guess of £35bn has been widely recognised as a serious underestimate. But even allowing for the fact that it would never be possible to close the entire gap, those figures give a sense of what resources could be mobilised with a determined crackdown. Set them, for instance, against the £83bn in cuts planned for this parliament (including £18bn in welfare) – or the £1.2bn estimated annual benefit fraud bill – and you get a sense of what’s at stake.

Cameron and Osborne wring their hands at the “moral repugnance” of “aggressive avoidance”, but are doing nothing serious about it whatever. They’ve been toying with a general “anti-abuse” principle. But it would only catch a handful of the kind of personal dodges the comedian Jimmy Carr signed up to, not the massive profit-shuffling corporate giants have been dining off.

It’s not as if there aren’t any number of measures that would plug the loopholes and slash tax avoidance and evasion. They include a general anti-avoidance principle (of the kind the Labour MP Michael Meacher has been pushing in a private member’s bill) that would outlaw any transaction whose primary purpose was avoidance rather than economic; minimum tax (backed even by the Conservative Elphicke); and country-by-country financial reporting, and unitary taxation, to expose transfer pricing and limit profit-siphoning.

But when austerity and cuts are sucking demand out of the economy, fuelling poverty and joblessness and actually widening the deficit, the need to step up the pressure for corporations and the wealthy to pay their share as part of a wider recovery strategy couldn’t be more obvious.

The target has to shift from “welfare scroungers” to tax dodgers, and the campaign go national. Companies that are milking the country at the expense of the majority are especially vulnerable to brand damage. Forcing them to pay up is a matter of both social justice and economic necessity.

HMRC has issued an invitation to participants in certain tax-planning schemes to settle without going to litigation. Initially the offer only covers a very limited number of schemes.

The category of schemes includes the use of General Accepted Accounting Practice (GAAP) by companies, sole traders or partnerships to create asset depreciation costs and reduce their taxable profits. Other schemes subject to the amnesty are those relying on film production expenditure relief, and those that create partnership losses from first year allowance reliefs, restrictive covenant payments, and certain capital allowances.

Similar arrangements may be extended in future to participants in film partnership sale-and-leaseback schemes, and interest relief schemes based on S353(1) ICTA 88, though HMRC has not yet decided. HMRC says its aim is to restrict relief so that expenditure which is not part of the real economic cost borne by the participants will be excluded when calculating losses or capital allowances. Only amounts equivalent to the actual cash contribution funded by the participant and expended in the claimed trade will be allowed when computing losses or capital allowances.

Reliefs will probably not be allowed where the scheme participants have paid fees for tax advice or litigation protection. Some specific schemes that fall into the above categories are, however, expressly excluded from the amnesty. The offer has been prompted by HMRC’s successes in some recent litigation, notably Tower MCashback, and the film partnership cases Eclipse no.35, Icebreaker no.1, Samarkand and Alchemist. HMRC plans to contact all eligible individuals by the end of January, and says it is prepared to settle with individual partners in a scheme even if the partnership as a whole declines the offer.

Those who decline to settle will see the agency ‘increase the pace of our investigations and accelerate disputes into litigation,’ it said, though no specific deadline has been set.

The Rt Hon Margaret Hodge MP, Chair of the Committee of Public Accounts, today said:

“This report is a damning indictment of HMRC and the way its senior officials handle tax disputes with large corporations. We uncovered both specific and systemic failures which must be addressed.

There is more than £25 billion outstanding in unresolved tax bills and it is essential that there should be proper accountability to Parliament for the settlements reached by HMRC.

Having looked at the two cases in the public domain, we are concerned that many millions of pounds may be lost to the public purse.

It is extremely disappointing that senior HMRC officials were not prepared to cooperate with our inquiry in a spirit of openness. We accept that there is a need for confidentiality to protect individual taxpayers, but this must not be used as a cloak to protect the Department from scrutiny.

It is absurd that we had to rely on the media and the actions of a whistleblower to find out about the details of individual settlements. Parliament and the public have legitimate concerns that large companies are being treated more favourably than ordinary taxpayers, whether they be small businesses or hard-working families.

The Department’s working practices must be seen by the taxpaying public to be absolutely impartial. The impression being given at the moment is quite the opposite, of far too cosy a relationship between HMRC and large companies.

In several cases, HMRC chose to depart from its normal governance procedures. It is extraordinary that the same officials who negotiated deals also approved them. In one instance, a mistake led to a potential £20 million of interest on a tax liability not being collected. Parliament and the public must be assured that settlements do not short-change the Exchequer.”

Margaret Hodge was speaking as the committee published its 61st Report of this Session which, on the basis of evidence from the Cabinet Secretary and HM Revenue & Customs (the Department), examined tax disputes.

At 31 March 2011 HM Revenue & Customs (the Department) was seeking to resolve tax issues valued at over £25 billion with large companies, some of which included disputes over outstanding tax. The Department must collect as much outstanding tax as possible and be held properly to account for how it resolves tax disputes. We have serious concerns about how the Department handled some cases involving large settlements, where governance arrangements were bypassed or overlooked until it was too late. In some cases the same officials negotiated and approved the settlements, which is clearly unacceptable.

Investigation of these specific cases has led to serious concern about systemic issues which must be addressed with the utmost urgency. There needs to be proper separation between the negotiation of tax settlements and the authorization of such settlements. And the Department must address issues of accountability so that Parliament and the public can be satisfied that best value is secured.

The Department has made matters worse by trying to avoid scrutiny of these settlements and has consistently failed to give straight answers to our questions about specific cases, which has severely hampered our ability to hold it to account for the settlements reached.

The Department has insisted on keeping confidential the details of specific settlements with large companies, even where there have been legitimate concerns about the handling of cases. Details of some cases only reached the public domain because the press secured the details. We recognise the general intention of the legislation is to keep taxpayers’ details confidential, but there is a provision which allows the Commissioners to authorise disclosure in certain circumstances. Furthermore, HMRC has a clear duty to assist Parliament in its work to establish value for money and detailed information can be necessary if Parliament is to properly meet its obligations. Given the public interest in these very large settlements, it is not unreasonable that they should be subject to more specific scrutiny. As it stands, the Department’s decision to withhold details from us reduces transparency and makes it impossible for Parliament to hold Commissioners to account. This situation is entirely unacceptable.

We discovered that the Department’s governance processes for large settlements were not applied consistently. In one case, a mistake was not picked up until too late because the Department failed to follow its own governance procedures. The C&AG told us that this resulted in a loss of up to £8 million in interest forgone. We have since received evidence from a whistleblower that the total value of interest payable in respect of this particular settlement could be as high as £20 million. Our understanding of how this case was settled is inhibited by the imprecise, inconsistent and potentially misleading answers given to us by senior departmental officials, including the Permanent Secretary for Tax. In particular, his evidence to the Treasury Select Committee on his relationship with Goldman Sachs is less than clear given his evidence to us that he facilitated a settlement with the company over their tax dispute. We expect far greater candour from public officials involved in administering such an important area of government, especially when there is a question about whether HMRC acted within the law and within its protocols. We are concerned that whistleblowers using the provisions of the Public Interest Disclosure Act 1998 face threats of dismissal for providing important and relevant information.

The Department accepts that its governance arrangements have not provided sufficient assurance and that independent scrutiny of large settlements is needed. It has appointed two new Commissioners with tax expertise, and plans to introduce a new assessor role to permit independent review of large settlements before they are finalised. The Cabinet Secretary assured us that proposals would be submitted to the Public Accounts Committee by Christmas. We welcome these measures, but they will not by themselves guarantee proper accountability. In future, the Department needs to ensure it follows its own governance procedures and checks without exception. In particular, it needs to make sure that in all cases there is a clear separation between the roles of those negotiating and those signing off settlements.
We saw little evidence of a culture of personal accountability within the Department. We were told that one individual was held accountable for the mistake which led to a loss of the interest due to the Department. However, those at the top of the Department also need to take responsibility for how the overall system has been designed and operated, since that is the context in which mistakes have occurred.

We have serious concerns that large companies are treated more favourably by the Department than other taxpayers. We were told by the Cabinet Secretary that the relationship management approach adopted for large companies had been very successful in terms of tax collection. But for the public to have confidence in this approach, the Department’s working practices must be seen to be absolutely impartial. The Department has left itself open to suspicion that its relationships with large companies are too cosy. We are also concerned that large companies appear to receive preferential treatment compared to small businesses and individuals – for example, in settling the totals due at less than the sum claimed by HMRC and in the time they are allowed to pay their tax liabilities without incurring interest charges. In order to maintain public confidence, the Department must ensure it avoids any perception of undue leniency in its dealings with large companies and must be seen to treat every taxpayer equally before the law.

We welcome the Comptroller and Auditor General’s proposal to conduct further work to consider the reasonableness of the settlements reached in the specific cases where normal governance processes were not followed, and to report on whether proper legal advice was secured in a timely manner and that HMRC complied with its own published procedures and protocols. The Department has agreed to co-operate fully with this inquiry and with any subsequent hearings we hold.

While the World Economic Forum has taken up pages of the world’s leading business press another far less reported conference took place in San Antonio, Texas. Hosted by the American Bar Association, the conference laid out the plans of the US Department of Justice (DOJ) and US Internal Revenue Service (IRS) in their ongoing battle against privacy and competitive taxation.

The consensus is truly worrying: the UBS and Swiss Financial Markets Association’s divulging of private client information to the USA (which has since been ruled illegal by the Swiss courts and about which I have written here before), Tax Information Exchange Agreements, blacklists and economic blackmail are all just the start of this concerted effort to stop individuals benefiting from employing competitive jurisdictions for business and investment.

Some items of note were the new “Joint International Tax Shelter Information Centre”.

Tax departments from Australia, Canada, Japan and the UK are ganging up with the US IRS to conduct what the IRS calls “holistic taxpayer analysis“. This rather flowery name hides what can only be described as multi-lateral state sponsored invasion of privacy and entails a thorough scrutinizing of all personal and business holdings and interests of the individual in each and every jurisdiction simultaneously. This coincides with the opening of 11 new international IRS offices around the world, with Switzerland and Panama already earmarked as 2 countries to get their very own branch of the US tax office!

The UBS saga began primarily with a tip off from a disgruntled former UBS employer, Bradley Birkenfeld. I imagine the proximity of these new IRS offices is to encourage just that sort of behaviour. Some food for thought, however, for anyone who feels they would like to pop in and have a chat with their new local IRS branch: Birkenfeld has been sentenced last month to over 3 years imprisonment for his help.

I have written before that a swiss banker that I know, no longer takes US citizens as clients as it is too much effort. Well, new legislation which is being enacted currently by the US government with the wonderful acronym of FATCAT, seems designed to spread this sentiment by making it totally cost prohibitive for almost all foreign banks to hold US owned accounts, Though the Foreign Account Tax Compliance Reporting Act (FATCAT) which should enter in to US law in the next few weeks, may also have the unwanted effect of stopping or curtailing foreign investment in to the US markets as compliance cost rise for international brokers and investment groups, One could argue this could be counter productive however much extra tax revenue is raised, as the US economy struggles out of recession and the Dollar remains weak, is a further drop in demand for the currency, US stocks or treasury products what is wanted or needed by the US taxpayer, sovereign wealth funds or international investors alike??

John Fry.

John is the Business Development Director of Formcos-Russia a unique trust company offering trust and tax planning services internationally from Moscow.